Correlation Between US Bancorp and Western Digital

Can any of the company-specific risk be diversified away by investing in both US Bancorp and Western Digital at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining US Bancorp and Western Digital into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between US Bancorp and Western Digital, you can compare the effects of market volatilities on US Bancorp and Western Digital and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in US Bancorp with a short position of Western Digital. Check out your portfolio center. Please also check ongoing floating volatility patterns of US Bancorp and Western Digital.

Diversification Opportunities for US Bancorp and Western Digital

0.42

Correlation Coefficient

US Bancorp  Western Digital

Very weak diversification

The 3 months correlation between USB and Western is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding US Bancorp and Western Digital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Digital and US Bancorp is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on US Bancorp are associated (or correlated) with Western Digital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Western Digital has no effect on the direction of US Bancorp i.e., US Bancorp and Western Digital go up and down completely randomly.

Pair Corralation between US Bancorp and Western Digital

Assuming the 90 days trading horizon US Bancorp is expected to generate 0.89 times more return on investment than Western Digital. However, US Bancorp is 1.12 times less risky than Western Digital. It trades about 0.15 of its potential returns per unit of risk. Western Digital is currently generating about -0.03 per unit of risk. If you would invest  70,120  in US Bancorp on September 24, 2024 and sell it today you would earn a total of  30,330  from holding US Bancorp or generate 43.25% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

US Bancorp  vs.  Western Digital

US Bancorp

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in US Bancorp are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak fundamental drivers, US Bancorp showed solid returns over the last few months and may actually be approaching a breakup point.

Western Digital

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Western Digital has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong fundamental indicators, Western Digital is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with US Bancorp and Western Digital

The main advantage of trading using opposite US Bancorp and Western Digital positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if US Bancorp position performs unexpectedly, Western Digital can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Western Digital will offset losses from the drop in Western Digital's long position.

The idea behind US Bancorp and Western Digital pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

Check out your portfolio center.

Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.